Turkey Monetary Policy December 2016

Turkey: Central Bank leaves interest rates unchanged in December

December 20, 2016

At its 20 December monetary policy meeting, the Central Bank of the Republic of Turkey (CBRT) decided to leave the marginal funding rate unchanged at 8.50%. At the same time, the one-week repo rate was held at 8.00%, while the overnight borrowing rate was kept at 7.25%.

The Bank commented that recently released GDP data indicate a deceleration of the Turkish economy in the third quarter. However, the Bank expects economic activity to recover in the final quarter of the year thanks to accommodative domestic policy measures, as well as strong demand for Turkish exports among countries in the European Union. According to the Bank, the structural reforms being undertaken by the Turkish government should also raise the country’s long-run growth potential.

The Central Bank painted a mixed picture with regards to inflation, with the effects of an increase in the oil price and a fall in the value of the lira due to heightened global uncertainty being offset by sluggish domestic demand. The Bank commented that it will monitor future price developments closely and maintain its cautious monetary policy stance.

FocusEconomics Consensus Forecast panelists see the one-week repo rate ending the year at 7.59%. For 2017, the panel expects the rate to rise to 7.90%. Panelists see the marginal funding rate ending the year at 8.43%. For 2017, the panel expects the rate to rise to 8.73%.

The Manufacturing Purchasing Managers’ Index (PMI) produced by the Istanbul Chamber of Industry (ICI) and IHS Markit eased from 54.7 in June to 53.6 in July, which marked the second-highest reading in more than three and a half years.